Supermarket franchise models in India are growing at a rapid speed by making their way into tier-2 & even tier-3 cities. Though COVID-19 seriously slowed down the speed of the Indian market, things are quite well going now.
The tier-2 & tier-3 people are now becoming more choosy about their grocery items. Packaged food is becoming more popular and therefore opening the doors of supermarket and franchise businesses to enter. It’s the perfect time to start an organized retail & supermarket chain in India when so many opportunities are coming for new businesses.
Looking to start a franchise business? You must understand the franchise models to choose the right one for the targeted market and to make it work in your favour.
What is the Supermarket Franchise Model?
A supermarket franchise model refers to a chain of stores which uses the same trademark as the parent store or company. This business model allows other store owners to work under the brand name of a business, trademark, brand, or business system which holds the whole trade system and ownership.
In exchange, the franchisees pay a certain amount of fees based on their sales or a fixed amount to the franchisor. This model allows the store franchisees to enjoy the benefits of an established brand instead of going through complex legal procedures for starting a brand.
An established brand, business operational system, and enterprise-level support system let franchisors get the best deals in the market and have a chance to expand business diversity as well as make more profit.
Types of Supermarket Franchise Models:
We can divide supermarket franchise models into four major categories. Most of the businesses that are currently tapping into the franchise market select one of the below-listed types.
1. Franchise Owned Franchise Operated (FOFO)
This model allows franchisors to make decisions on the local level, making the store in an area dependent on strategies while benefiting from brand value.
Localized decisions help the franchise take and curate their strategies around marketing & sales for their businesses.
Examples of major chains:
- Subway,
- KFCs,
- Burger King
- Dunkin
Pros:
- Franchises allow you to make decisions based on local circumstances.
- It allows the franchise to leverage established brand recognition and equity from the market.
- The store owners are allowed to gain benefits from the brand’s system and guidance in the business.
- Offers flexibility to tailor marketing strategies for the local areas.
- Provide access to franchise best practices and knowledge to the business.
Cons:
- Lack of control can bring havoc in individual franchise centres.
- The success of the overall brand is dependent on franchise success, where freedom of localisation can be a risk.
- Standard training can be challenging to offer to each franchisee.
- High royalty fees may affect the overall profitability of the individual franchisees.
- Franchise models generally have a standard product list. This, despite offering local curation, mainly limits the innovative ideas in products.
- Legal issues can arise between the two parties.
- There is a risk to the brand image of the business.
2. Company Owned Company Operated (COCO)
Company-owned company operated model of franchise business refers to a business system where the owner or the brand has complete control over its outlets and stores in a wide area.
The brand decides on marketing strategies, products & services as well as curates opportunities and strategies according to local market circumstances.
Example of major chains:
- Apple Stores
- Starbucks
- Zara (Inditex)
- McDonald’s
- Tesla
Pros:
- Offer better quality control over operations, professionalism and quality.
- Maintains a uniform brand image and customer experience regardless of location.
- Offer better control on profits, leading to better financial potential for reinvestment.
- The franchisor operates the stores directly.
- The franchisor has complete control over everyday operations.
- The franchisor is directly accountable for everything.
Cons:
- Need high investment to set up and run the outlets all by franchisor.
- It offers limited expansion speed, which may slow business comparatively.
- Managing too many outlets directly can cause havoc and may require strong infrastructure.
- Offers limited understanding of and opportunities from the local market and limits adaptability.
- There is a challenge to operations across all outlets, posing a higher risk.
3. Company Owned Franchise Operated (COFO)
In this business model, the franchisor owns a store but appoints a franchise to maintain the decorum and business operations. All the operations and business strategies are under the control of the franchisor, which offers real brand recognition and direct control, but a franchise is there to operate everything on the ground.
Example major chains:
- Call centre franchises work on this model.
Pros:
- The store is completely operational under the franchisor.
- The franchise is there to maintain the day-to-day operations.
- Franchisees invest in the business.
- Offer zero operational expenses as there are entrepreneurs to do so.
- Franchise operators on the franchisor’s guidelines and system.
- Offer the benefit of a franchisor’s brand image and recognition in the market.
- The franchisor offers support training and operational guidelines to face any situations in business.
Cons:
- There is a potential conflict of interest between the franchisor & the franchisees.
- Franchisees might feel over-controlled by the owner.
- Offering consistent brand standards and excellent customer experience at all places can be challenging.
- The owner may face difficulties in allocating resources effectively in different outlets.
- Inconsistent practices may harm the brand image.
4. Franchise Owned Company Operated (COFO)
The old company-operated franchise model refers to a system where the franchise owns the store as well as oversees day-to-day operations.
Franchisees invest in the business and enjoy the benefits from pre-established recognition of the brand while the franchisor controls the business operations.
Example Major Chains:
- Ferns & Petals.
- ClearDekho
- Kalyan Jewellers
- McDonald’s
- 7Heven
Pros:
- Offers the stores to enjoy brand recognition and early trust companionship.
- Franchise managers do the day-to-day operations, so the franchise doesn’t have much to worry about.
- Ensures brand standards or operational consistency throughout all the brand outlets.
- The franchisor provides guidance, training, operational support, and marketing strategies to perform better.
- Aligns franchise and franchise interests for mutual success for each one of them.
Cons:
- Increases the dependence on the franchise outlets for the success of the brand.
- Franchise may operate differently than it operates and therefore may dilute the brand image throughout different locations.
- There is a chance of a potential conflict of interest between the franchise and the franchisor about the standards and profits.
- Companies may lack the needed control to enforce operational guidelines and standard uniformity throughout their outlets.
- Quality issues and operational problems can affect the overall brand image.
Key Differences and Considerations:
Check out the below-listed differences between all the supermarket franchise models.
Factor | Franchise Owned Franchise Operated | Franchise Owned Company Operated | Company Owned Company Operated | Company franchise-operated |
|---|---|---|---|---|
Recommendations for Prospective Franchisees:
We understand the burning zeal you have for business, but this is a time for evaluation and understanding the critical points of the best supermarket franchise in India, which can either help you make money or lose it.
1. Understand Your Capabilities:
Evaluate your skills, experience, financial capabilities, business understanding, and expertise to move forward. If you have a background in retail, management, or business studies, it may help you understand the market and make reports.
2. Set Your Goals:
Set your goals before you approach any franchise. Defining your business objectives will help you create a new path for rapid growth, stable income, and future market niches to target. This will also influence the type of franchise model you must choose to fulfil all of your needs as well.
3. Check the Availability of Franchises in the Market:
Before jumping into any franchise model, research what your options are. The available options of the supermarket franchise model on the market may offer you a better deal to fulfil your targets. Consider well-established brands with a proven track record. Choosing such brands may offer you initial success in the first few months only as well as let you enjoy customer trust from day 1.
4. Do Market Analysis:
Analyze your local market and identify the consumer’s preferences. Analyzing the behaviour of a consumer will help you understand the trends, choices, and competition that you might have to face. This information will help you create your supermarket model to fulfill all the requirements of the local population, which is also the direct targeted customers.
5. Choose the Location:
Choosing the right location is crucial for your success. You must analyze the demographics, foot traffic, and proximity to your competitors. Choosing a strategic location can strongly influence your business by increasing recognition, traffic, and sales.
6. Analyse Your Competition:
Study the operating supermarkets in your area. Understand how they are working, what their strengths and weaknesses are, and what they lack. Make sure to bring something unique to the market to offer a better customer experience, unique products, and services to all.
7. Franchise Agreements:
Review your franchise agreements again and again. Pay attention to initial fees, royalty fees, recurring investment amount, support and contractual decisions. If possible, see some legal advice ensuring that you understand the terms and conditions before committing yourself to a franchise business model.
8. On-going Support:
Don’t miss out on checking out the support system offered by the franchise model. This includes training, marketing assistance, and guides on how to operate in the market, creating marketing strategies, and setting up professional operations in the company.
A supportive franchisor will lead you into a long-term business offering quality, stability, and profits all along.
Conclusion
It is crucial to understand the supermarket franchise models before investing in the franchise businesses. The four business models, FOFO, FOCO, COCO, and COFO franchises have different benefits and limitations: franchises and franchisors as well.
It would be wrong to say that no model is ideal for all businesses, but each market and each business requires different supermarket franchise models that can maximize profit with minimal potential risks.
Consider your goals, ability, control over the business and ongoing support level to start a franchise business.
FAQ’s:
1. What are the most popular supermarket franchise models in India?
Ans- 7Heven, Big Bazaar, Reliance Fresh, and Spencer’s are some of the most popular supermarket models in India.
2. Which supermarket franchise requires the highest investment?
Ans- An international supermarket franchise requires more investment whereas a local supermarket franchise demands less investment overall.
3. What support can I expect from the franchisor under different models?
- FOFO- Offers training & guidelines to operate
- FOCO- Offers technical support, training, guidelines, and operational involvement of the company.
- COFO offers comprehensive support.
- COCO – offers support, guidelines and day-to-day operations.
4. What is the ideal supermarket franchise model for small towns?
Ans- If you’re trying to tap into the small-town market, the ideal would be the models to focus on local demands and offer flexibility to cater to a small community.
5. How much profit can a supermarket franchise owner expect?
Ans- A general supermarket franchise’s sales profits are around 5%-20% of total sales.
6. What are the criteria for selecting a location for a supermarket franchise?
Ans- Consider factors like:
- Consumer Behavior
- Competition
- Accessibility
- Transportation
- Population Density
- Foot Traffic
7. What support does the franchisor provide for inventory management?
Ans- Franchisors often offer guidelines on inventory management, selection of stocks, process ordering systems, and stock management.
Training sessions on inventory management are also provided for the franchisees.
8. What are the criteria for applying for a supermarket franchise?
Ans- Starting a supermarket franchise model may require you to follow these criteria.
- An initial investment.
- Financial stability to maintain the workflow.
- Relevant experience.
- Commitment agreements
- Must-follow guidelines.
- Specific eligibility criteria of the franchisor.